This document provides an overview of corporate dividend policy. It discusses what dividends are, different types of dividends, factors that influence dividend policy decisions, and common dividend measurement approaches. Key points covered include that dividends are payments made to shareholders from corporate profits, factors like liquidity, growth opportunities, and legal requirements influence dividend policies, and policies generally aim for stable and regular dividend payouts.

1. PROJECT REPORT ON
“CORPORATE DIVIDEND POLICY”
BY
Session: 2014-16
Project Report submitted in partial fulfillment for the degree of
Master of Business Administration

2. Chapter -I
Introduction

3. 1.1 INTRODUCTION:
Dividends are payments made by a corporation to its shareholder members. It is the
portion of corporate profits paid out to stockholders. When a corporation earns a profit or
surplus, that money can be put to two uses: it can either be re-invested in the business, or it can
be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings
and pay the remainder as a dividend.
For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore,
a shareholder receives a dividend in proportion to their shareholding. For the joint stock
company, paying dividends is not an expense; rather, it is the division of an asset among
shareholders. Public companies usually pay dividends on a fixed schedule, but may declare a
dividend at any time, sometimes called a special dividend to distinguish it from a regular one.
Cooperatives, on the other hand, allocate dividends according to members' activity, so their
dividends are often considered to be a pre-tax expense.
Several factors must be considered when establishing a firm’s dividend policy. These include
 The liquidity position of the firm – just because a firm has income doesn’t mean that it
has any cash to pay dividends.
 Need to repay debt – oftentimes there are negative covenants that restrict the dividends
that can be paid as long as the debt is outstanding.
 The rate of asset expansion – the greater the rate of expansion of the firm, the greater the
need to retain earnings to finance the expansion.
 Control of the firm – if dividends are paid out today, equity may have to be sold in the
future causing a dilution of ownership.
 Legal Considerations:
Technically, it is illegal to pay a dividend except out of retained earnings. This is to
prevent firms from liquidating themselves out from underneath the creditors.
Internal Revenue Service Section 531 – Improper Accumulation of funds. This is to
prevent individuals from not paying dividends in order to avoid the personal income
taxes on the dividend payments.

4. Is it in the best interests of shareholders to pay out earnings as dividends or to reinvest
them in the company? The answer to this depends upon the investment opportunities that the
firm has.
There are three fundamental policies to paying cash dividends that firms employ:
1. Pay a constant dollar amount each year regardless of earnings per share. This is what
most firms do.
2. Use a constant payout ratio (for example, 50% of EPS)
3. Pay a low, fixed dividend amount plus “dividend extras” or “special dividends”. This
allows the company to avoid having to cut dividends since the basic dividend is low, but
also avoids the improper accumulation of funds during good years.
A cut in dividends generally hurts a stock’s price because it sends a signal to stockholders
that management’s outlook for the future is that the company cannot continue to pay the
dividend. Most companies therefore start off with a low dividend and only increase it when they
feel that the earnings prospects have improved sufficiently to allow for maintaining a higher
dividend. Many companies will even borrow money in a bad year in order to avoid cutting the
dividends.
The market price is influenced by dividends through what is called the “clientele” effect.
That is, some investors want dividends (such as retirees and pension funds) while others do not
want dividends (wealthy individuals) but would prefer capital gains (which are taxed at a lower
rate and deferred).
Flotation costs encourage a company to retain earnings in order to minimize having to sell
additional stock in the future. As we saw in the cost of capital calculations, the flotation costs
make new equity more expensive than retained earnings.
Some companies pay no dividends. Why? Because they have good investment opportunities
and reinvest the earnings.
1.2 FORMS OF PAYMENT:
Cash dividends are those paid out in the form of a cheque. Such dividends are a form of
investment income and are usually taxable to the recipient in the year they are paid. This is the
most common method of sharing corporate profits with the shareholders of the company. For
each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares
and the cash dividend is Rs. 0.50 paisa per share, the person will be issued a cheque for Rs. 50.

5. Stock or scrip dividends are those paid out in form of additional stock shares of the
issuing corporation, or other corporation (such as its subsidiary corporation). They are usually
issued in proportion to shares owned (for example, for every 100 shares of stock owned, 5%
stock dividend will yield 5 extra shares). If this payment involves the issue of new shares, this is
very similar to a stock split in that it increases the total number of shares while lowering the price
of each share and does not change the market capitalization or the total value of the shares held.
Property dividends are those paid out in the form of assets from the issuing corporation
or another corporation, such as a subsidiary corporation. They are relatively rare and most
frequently are securities of other companies owned by the issuer, however they can take other
forms, such as products and services.
1.3 DATES:
Dividends must be "declared" by a company’s Board of Directors each time they are
paid. For public companies, there are four important dates to remember regarding dividends.
These are discussed in detail with examples at the Securities and Exchange Commission site
The declaration date is the day the Board of Directors announces its intention to pay a dividend.
On this day, a liability is created and the company records that liability on its books; it now owes
the money to the stockholders. On the declaration date, the Board will also announce a date of
record and a payment date.
The in-dividend date is the last day, which is one trading day before the ex-dividend date,
where the stock is said to be cum dividend ('with [including] dividend'). In other words, existing
holders of the stock and anyone who buys it on this day will receive the dividend, whereas any
holders selling the stock lose their right to the dividend. After this date the stock becomes ex
dividend.
The ex-dividend date is the day on which all shares bought and sold no longer come
attached with the right to be paid the most recently declared dividend. This is an important date
for any company that has many stockholders, including those that trade on exchanges, as it
makes reconciliation of who is to be paid the dividend easier. Existing holders of the stock will
receive the dividend even if they now sell the stock, whereas anyone who now buys the stock
will not receive the dividend. It is relatively common for a stock's price to decrease on the ex-
dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the
company's assets resulting from the declaration of the dividend. The company does not take any

6. explicit action to adjust its stock price; in an efficient market, buyers and sellers will
automatically price this in.
Whenever a company announces a dividend pay-out, it also announces a "Book closure
Date" which is a date on which the company will ideally temporarily close its books for fresh
transfers of stock. Read "Book Closure" for a better understanding.
Shareholders who properly registered their ownership on or before the date of record,
known as stockholders of record, will receive the dividend. Shareholders who are not registered
as of this date will not receive the dividend. Registration in most countries is essentially
automatic for shares purchased before the ex-dividend date.
The payment date is the day when the dividend checks will actually be mailed to the
shareholders of a company or credited to brokerage accounts.
1.4 TYPES OF DIVIDEND POLICIES:
There are many distinct dividend policies, but most policies fall into one of three
categories.
(A) A stable dividend policy is characterized by the tendency to keep a stable dollar amount
of dividends per share from period to period.
Corporations tend to establish a predetermined target dividend payout ratio in which
dividends are increased only after management is convinced that future earnings can support the
higher dividend payment. Under this policy, dividend changes will normally lag behind earnings
changes. Firms are reluctant to lower their dividend payments, even in times of financial distress.
Most firms follow a relatively stable dividend policy for four reasons:
1. Many business executives believe that stable dividend policies lead to higher stock
prices. The empirical evidence on the relationship between dividend policy and stock
prices is inconclusive.
2. Investors may view constant or steadily increasing dividends as more certain than a
fluctuating cash dividend payment.
3. There is less chance to signal erroneous informational content with a stable dividend
policy. Thus, firms tend to avoid reducing the annual dividend because of the
information content that a dividend cut may convey.
(B) A constant dividend payout ratio policy is one in which a firm pays out a constant
percentage of earnings as dividends.

7. This policy is easy to administer once the firm selects the initial payout ratio. A constant
dividend payout policy will cause dividends to be unstable and unpredictable, if earnings
fluctuate. Few firms follow a constant dividend payout policy because stock prices may be
adversely affected by highly volatile dividends.
1.5 FACTORS AFFECTING DIVIDEND POLICY:
1. Stability of Earnings. The nature of business has an important bearing on the dividend
policy. Industrial units having stability of earnings may formulate a more consistent dividend
policy than those having an uneven flow of incomes because they can predict easily their savings
and earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than
those dealing in luxuries or fancy goods.
2. Age of corporation. Age of the corporation counts much in deciding the dividend
policy. A newly established company may require much of its earnings for expansion and plant
improvement and may adopt a rigid dividend policy while, on the other hand, an older company
can formulate a clear cut and more consistent policy regarding dividend.
3. Liquidity of Funds. Availability of cash and sound financial position is also an
important factor in dividend decisions. A dividend represents a cash outflow, the greater the
funds and the liquidity of the firm the better the ability to pay dividend. The liquidity of a firm
depends very much on the investment and financial decisions of the firm which in turn
determines the rate of expansion and the manner of financing. If cash position is weak, stock
dividend will be distributed and if cash position is good, company can distribute the cash
dividend.
4. Extent of share Distribution. Nature of ownership also affects the dividend decisions.
A closely held company is likely to get the assent of the shareholders for the suspension of
dividend or for following a conservative dividend policy. On the other hand, a company having a
good number of shareholders widely distributed and forming low or medium income group
would face a great difficulty in securing such assent because they will emphasize to distribute
higher dividend.
5. Needs for Additional Capital. Companies retain a part of their profits for
strengthening their financial position. The income may be conserved for meeting the increased
requirements of working capital or of future expansion. Small companies usually find difficulties
in raising finance for their needs of increased working capital for expansion programmes. They

8. having no other alternative, use their ploughed back profits. Thus, such Companies distribute
dividend at low rates and retain a big part of profits.
6. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend
policy is adjusted according to the business oscillations. During the boom, prudent management
creates food reserves for contingencies which follow the inflationary period. Higher rates of
dividend can be used as a tool for marketing the securities in an otherwise depressed market. The
financial solvency can be proved and maintained by the companies in dull years if the adequate
reserves have been built up.
7. Government Policies. The earnings capacity of the enterprise is widely affected by the
change in fiscal, industrial, labour, control and other government policies. Sometimes
government restricts the distribution of dividend beyond a certain percentage in a particular
industry or in all spheres of business activity as was done in emergency. The dividend policy has
to be modified or formulated accordingly in those enterprises.
8. Taxation Policy. High taxation reduces the earnings of the companies and
consequently the rate of dividend is lowered down. Sometimes government levies dividend-tax
of distribution of dividend beyond a certain limit. It also affects the capital formation. In India,
dividends beyond 10 % of paid-up capital are subject to dividend tax at 7.5 %.
9. Legal Requirements. In deciding on the dividend, the directors take the legal
requirements too into consideration. In order to protect the interests of creditors and outsiders,
the companies Act 1956 prescribes certain guidelines in respect of the distribution and payment
of dividend. Moreover, a company is required to provide for depreciation on its fixed and
tangible assets before declaring dividend on shares. It proposes that Dividend should not be
distributed out of capita, in any case. Likewise, contractual obligation should also be fulfilled, for
example, payment of dividend on preference shares in priority over ordinary dividend.
10. Past dividend Rates. While formulating the Dividend Policy, the directors must keep
in mind the dividend paid in past years. The current rate should be around the average past rat. If
it has been abnormally increased the shares will be subjected to speculation. In a new concern,
the company should consider the dividend policy of the rival organization.
11. Ability to Borrow. Well established and large firms have better access to the capital
market than the new Companies and may borrow funds from the external sources if there arises
any need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have

9. to depend on their internal sources and therefore they will have to build up good reserves by
reducing the dividend payout ratio for meeting any obligation requiring heavy funds.
12. Repayments of Loan. A company having loan indebtedness are vowed to a high rate
of retention earnings, unless one other arrangements are made for the redemption of debt on
maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders (mostly
institutional lenders) put restrictions on the dividend distribution still such time their loan is
outstanding. Formal loan contracts generally provide a certain standard of liquidity and solvency
to be maintained. Management is bound to hour such restrictions and to limit the rate of dividend
payout.
13. Time for Payment of Dividend. When should the dividend be paid is another
consideration. Payment of dividend means outflow of cash. It is, therefore, desirable to distribute
dividend at a time when is least needed by the company because there are peak times as well as
lean periods of expenditure. Wise management should plan the payment of dividend in such a
manner that there is no cash outflow at a time when the undertaking is already in need of urgent
finances.
14. Regularity and stability in Dividend Payment. Dividends should be paid regularly
because each investor is interested in the regular payment of dividend. The management should,
in spite of regular payment of dividend, consider that the rate of dividend should be all the most
constant. For this purpose sometimes companies maintain dividend equalization Fund.
1.6 MOST COMMON TYPE OF DIVIDEND MEASURE :
Level of dividends often measured by dividend yield:
Dividend yield =
Measures % return earned by investor from dividends alone
Firm’s dividend policy can also be measured by payout ratio:
Payout ratio =
P
D
pricestock
dividendannual

EPS
D
shareperearnings
dividendannual


10. 1.7 CORRELATION WITHMARKET PRICE:
Two important models supporting dividend Correlation are given by Walter and Gordon.
1. Walter Model
Walter's model: Dividends paid to the shareholders are reinvested by the shareholder
further, to get higher returns
Mathematically it’s given by
Where,
P = Market price of the share
D = Dividend per share
r = Rate of return on the firm's investments
ke = Cost of equity
E = Earnings per share‘
Therefore, from above the market value of a share is the result of expected dividends and
capital gains according to Walter
2. Gordon Model
Investors are risk averse and believe that incomes from dividends are certain rather than
incomes from future capital gains
According to which the market prices of the share is calculated as follows
Where,
P = Market price of the share
E = Earnings per share
b = Retention ratio (1 - payout ratio)
r = Rate of return on the firm's investments
ke = Cost of equity
br = Growth rate of the firm (g)
Therefore, the model shows a relationship between the payout ratio, rate of return, cost of
capital and the market price of the share.

11. Normally, the amount of dividend is highly variable. If the manager believes dividend policy is
important to their investors and it positively influences share price valuation, they will adopt
managed dividend policy. Firms generally adopt dividend policies that suit the stage of life cycle
they are in. For instance, high- growth firms with larger cash flows and fewer projects tend to
pay more of their earnings out as dividends. The dividend policies of firms may follow several
interesting patterns adding further to the complexity of such decisions. Also, there are distinct
differences in dividend policy over the life cycle of a firm, resulting from changes in growth
rates, cash flows, and project investments in hand. Shareholders wealth is represented in the
market price of the company’s common stock, which, in turn, is the function of the company’s
investment, financing and dividend decisions. Among the most crucial decisions to be taken for
efficient performance and attainment of objectives in any organization are the decisions relating
to dividend. Dividend decisions are recognized as centrally important because of increasingly
significant role of the finances in the firm’s overall growth strategy. The objective of the finance
manager should be to find out an optimal dividend policy that will enhance value of the firm.
Like other important policy decisions dividend policy too has a signaling effect on the firms
share prices. Generally, announcements of dividend increases generate abnormal positive
security returns, and announcements of dividend decreases generate abnormal negative security
returns. This is due to the fact that the company’s management has access to private and superior
information about future prospects and choose a dividend level to signal that private information.
Such a calculation, on the part of the management of the firm may lead to a stable dividend
payout ratio.
Dividend policy of a firm has implications for investors, managers and lenders and other
stakeholders, specifically the claimholders. For investors, dividends – whether declared today or
accumulated and provided at a later date are not only a means of regular income, but also an
important input in valuation of a firm. Similarly, managers’ flexibility to invest in projects is also
dependent on the amount of dividend that they can offer to shareholders as more dividends may
mean fewer funds available for future investments. Lenders may also have interest in the amount
of dividends a firm declares, as more the dividend paid less would be the amount available for
servicing and redemption of their claims. The dividend payments present an example of the
classic agency situation as its impact is borne by various claimholders. Accordingly dividend
policy can be used as a mechanism to reduce agency costs. The payment of dividends reduces

12. the discretionary funds available with the management for perquisite consumption and
investment opportunities and requires them to seek financing in capital markets. This monitoring
by the external capital markets compels the managers to be more disciplined and act in owners’
best interest.
Companies generally prefer a stable dividend payout ratio because the shareholders expect it and
reveal a preference for it. Shareholders may want a stable rate of dividend payment for a variety
of reasons. Risk-averse shareholders would be willing to invest only in those companies which
pay high current returns on shares. Similarly, educational institutions and charity firms prefer
stable dividends, because they will not be able to carry on their current operations otherwise.
Such investors would therefore, prefer companies, which pay a regular dividend every year. This
clustering of stockholders in companies with dividend policies that match their preference is
called clientele effect.
1.8 OBJECTIVES OF THE STUDY:
 To explore the insight of a corporate event named “Dividend Policy” which drags lot of
attention and results into many drastic changes in the market valuation of the firm.
 To study the impact of ‘dividend’ on the price and volume of business in the stock
exchange in respect of particular stock before and after such dividend is announced.
 To check whether abnormality exists in the price and volume of the share as the
‘dividend’ is announced.
 To find out the room for leakage of any insider information about ‘dividend policy’ of a
company
 To check whether any insider information plays any part in abnormal trading effect and
abnormal price effect in a script.
 To analyze the bearing of such abnormality (if it does exist) on the market capitalization
and volumes traded on the stock market a month before the Announcement Date and a
month after the ex-dividend date for all the scripts under the study.
 To measure the cumulative impact of ‘corporate dividend policy’ and try to conceive a
general trend based on it.

13. 1.9 DATA SOURCE AND METHODOLOGY:
Research Design:
 Exploratory Research
Sampling:
 Sampling Technique : Judgmental sampling
 Sampling Unit : One company of NSE-50
 Sampling Size : 5 companies from NSE-50 index
Data Sources:
 Secondary Data
 Internet Sources
 Business Journals
 Research papers
Method of Analysis:
 CAPM (Regression Model)
1.10 SCOPE OF THE STUDY:
 To do a relative analysis between NSE-50 index and share prices of selected
companies.
 Limited to NSE-50 companies only.
1. Study of the annual reports of different sector companies:
2. For each company, annual reports are taken from the year 2012 to 2015 (2012-15).
3. The scope of the study of report is limited to the establishment of Dividend Payout
Pattern and the factors necessary for such establishment
4. Following ratios have been worked out:
I. Scale of firm's operation by taking Natural Log of Net Sales
II. Dividend Yield
III. Dividend Payout Ratio

14. 1.11 LIMITATIONS OF THE STUDY:
 The results of the analysis might differ if any model other than CAPM (Regression
Model) is used.
 The study is limited to the 5 companies from NSE-50 index, which have declared
dividend in the year 2015.
 While studying the effect of corporate dividend policy on the market price of the script, it
is assumed that all the other factors affecting the market price are constant.

15. Chapter – II
Review of literature

16. 2.1 INTRODUCTION:
Efficient Market Hypothesis states that it is impossible to ‘beat the market’ because the
stock market efficiency causes the stock prices to incorporate and reflect all the new information
in the stock prices. We want to study whether the markets are efficient when the dividend policy
is announced by the corporate. There are certain issues which are to be focused upon. They are:
 To find out any relation between corporate dividend policy and market value of a
company.
 To analyze the effect of corporate dividend decisions in terms of creating abnormality in
the price and volume of the company.
 To check whether the markets are efficient when any news about dividend decisions of a
company is received.
2.2 LITERATURE REVIEW:
Modigliani and Miller (1961) have shown, investors may be indifferent about the
amount of dividend as it has no influence on the value of a firm. Any investor can create a ‘home
made dividend’ if required, or can invest the proceeds of a dividend payment in additional shares
as and when a company makes dividend payment. Similarly, managers may be indifferent as
funds would be available or could be raised without any floatation costs for all positive net
present value projects.
Lintner (1956) analyzes as to how firms set dividends and concluded that firms have
four important concerns. Firstly, firms have long-run target dividend payout ratios. The payout
ratio is high in case of mature companies with stable earnings and low in case of growth
companies. Secondly, the dividends change follows shift in long-term sustainable earnings. The
managers are more concerned with dividend changes than on absolute level. Finally, managers
do not intend to reverse the change in dividends. He finds that firms pay predictable and regular
dividends to investors; whereas the earnings of corporate firms could be erratic. This implies that
shareholders prefer smoothened dividend income.
Brealey (1992) poses the dividend policy decision as “What is the effect of change in
cash dividends, given the firm’s capital-budgeting and borrowing decisions?” In other words, he
looks at dividend policy in isolation and not as a by-product of other corporate financial
decisions.

17. Baker, Veit and Powell (2001) study the factors that have a bearing on dividend policy
of corporate firms traded on the NASDAQ. The study, based on a sample survey (1999) response
of 188 firms out of a total of 630 firms that paid dividends in each quarter of calendar years 1996
and 1997, finds that the following four factors have a significant impact on the dividend
decision: pattern of past dividends, stability of earnings, and the level of current and future
expected earnings. The study also finds statistically significant differences in the importance that
managers attach to dividend policy in different industries such as financial versus non-financial
firms.
Fama and French (2001) analyzed the issue of lower dividends paid by corporate firms
over the period 1973-1999 and the factors responsible for the decline. In particular, they
analyzed whether the lower dividends were the effect of changing firm characteristics or lower
propensity to pay on the part of the firms. They observed that proportion of companies paying
dividend has dropped from a peak of 66.5% in 1978 to 20.8% in 1999. They attributed this
decline to the changing characteristics of firms: “The decline in the incidence of dividend payers
is in part due to an increasing tilt of publicly traded firms toward the characteristics- small size,
low earnings, and high growth- of firms that typically have never paid dividends.”

18. Chapter -III
Dividend Decisions: Practical Facts

19. 3.1 INTRODUCTION:
Dividends decisions are an important aspect of corporate financial policy since they can
have an effect on the availability as well as the cost of capital. The Lintner proposition which
asserts that the corporate management maintains a constant target payout ratio has been the most
influential.
However, the concepts of primary of dividend decisions as well as the reasons for it are
not unambiguously defined. There is a variety of theories which attempt to rationalize the
observed secular constancy of the dividend payout ratio. These studies examine the factors
underlying the secular constancy of the dividend payout ratio. These studies examine the factors
underlying the structure of the management, the nature of the product and financial markets, as
well as the influence of the shareholders in their attempt to explain the Lintner proposition.
However, in the case of any one firm, the following two pertinent questions need to be examined
on an empirical basis to provide substance to the notion of primary of dividend decisions. (a)
What are dividend decisions primary for? And (b) for whom are they primary? An attempt has
been made to develop a theoretical framework to approach these questions and identify the
appropriate concept of primary and determine empirically the relationship of the primary notion
with the objectives of the share holders and the management.
The modeling framework postulates that (a) the dividend decisions may be primary to
management of the firm and/or the shareholder, and (b) each of the decision makers can have a
short run and/or long run objective when they evaluate dividend decisions. Share price increases
have been postulated as the basic short run objective of both the groups of decisions. Share price
increases have been postulated as the basic short run objective of both the groups of decision
makers. Similarly, both the share holders and the management are viewed as net worth
maximizes over long run.
The fundamental hypothesis for the short run models is that the management increases
the dividend per share whenever the share price, and that the share holder responds, to these in
such a way as to increase the share price. This result is expected if dividend decisions are
primary for both the groups.
In the long run context, it was felt that a progressive management would increase the net
worth the firm by investments in fixed assets of through building the reserve base. Dividends

20. would be primary decision if the internal financing of investment is constrained by the necessity
to pay dividends at a constant rate.
These are two extreme forms on which dividend decisions can be considered to be
primary. A variety of intermediate positions are possible in any specific case of a firm. The
models were designed to accommodate a rich variety of such behavioural patterns. The
theoretical structure was empirically tested for 71 firms of the corporate sector in 6 industries
using the data of the Bombay Stock Exchange Directory for the period 1967-68 to 1980-1. The
results generally indicate that the methodology of the present study would be helpful in examine
the notion of the primary of corporate dividend policy.
The following are the salient features of the empirical results.
(a) In the case of 17 firms dividend decisions were found to be primary. The factors which
accounted for primary were the following:
(1) Need to build the desired internal reserve base in the long run, and
(2) Inadequacy of funds to finance available investment opportunities while maintaining a
desired payout ratio.
(b) The Lintner hypothesis was validated under the following circumstance:
(1) The managers are oriented towards building up reserves to minimize dependence on
external funds,
(2) There is a lack of motivation or market opportunity for growth of the firm and
(3) There is no shortage of funds to pursue the desired objectives.
(c) Primary of dividends in the long run was observed in the case of 27 firms. The significant
reasons were
(1) Shortage of funds to take care of growth opportunities as well as requisite dividends, and
(2) Inadequacy of funds the desired reserve base.
Throughout this analysis dividend decisions were considered to be primary, if and only if, both
the groups of decision makers agree to the same objective and respond to each other’s perception
of goal satisfaction. Viewed from this vantage point dividend decision were primary only in a
few cases. The Lintner hypothesis of a constant dividend payout ratio appears to hold only
because of managerial motivations and not as a response to share holders’ desire. To that extent
attributing primary to dividend decisions in such content appears to be misplaced. Most of the
management in the corporate sector appears to desire the security of internal financing and build

21. reserves s a priority after paying certain minimum dividend per share. Despite these conclusions
from the models of the present study two inadequacies became apparent during the course of
work: (a) the goals pursued by the management and the share holders can be at variance. The
conflict resolution mechanism has not been explicitly modeled. (b) The interrelationships
between the short run and long run models are as yet tenuous. Further progress along these lines
is possible. But it will be an agenda for the future.
3.2 ROLE OF INSIDER TRADING
The existence and implications of asymmetric information in financial markets has been the
subject of extensive research in the finance literature. Two of the major propositions in this
literature are that (1) corporate insiders take advantage of asymmetric information by trading on
their informational advantage and (2) dividend policy is related to asymmetric information.
Taken together, these propositions imply that the dividend policy of a firm and the trading gain
realized by its insiders may be related because both are related to the level of information
asymmetry between the firms inside and outside investors.
The first proposition arises from the widely accepted notion that corporate insiders often
possess and trade on information about the value of their firms shares (relative to the current
stock price) that outside investors do not possess. This information asymmetry gives insiders the
ability to identify and take advantage of mispricing in the shares of their own firms. Jaffe(1974),
Finnerty (1976), Seyhun (1986), Jeng, Metrick, and Zeckhauser (1999), and Lakonishok and Lee
(2001) provide evidence that insiders earn significant abnormal profits from trading in their own
firms shares, though estimates of the sizes of the size of these profits vary widely. It should be
noted that this trading is within the legal boundaries set by the Securities and Exchange
Commission (SEC) and is therefore not illegal insider trading.
The second proposition is consistent with three different theories about the role of dividend
policy in financial markets. The first theory is what we shall refer to as the “free cash flow
theory” of dividends. This theory focuses on the divergence of interest between managers and
shareholders and on dividends as a disciplining mechanism that reduces the agency cost
associated with such a divergence. The payment of dividend reduces free cash flow, forcing
firms to enter the capital market more frequently and divulge information as they attempt to get
financing for their operations and investments. These subject them to the scrutiny of investment

22. bankers, analysts, and potential new investors more often and serve to reduce the investors. Thus,
higher dividend should be associated with reduced information asymmetry, all else being equal.
The second theory is what we shall call the “institutional monitoring theory” which is based on
Allen Bernardo and Welch (2000). This theory rests on two assumptions. The first is that
institutional investors are more effective at monitoring management than retail investors. Due to
the size of their investments and the resources at their disposal, institutional investors have
greater incentive and ability to gather and analyze information pertaining to their investments, as
well as a greater ability to discipline management and push for changes when management
performs poorly. The second assumption is that institutional investors prefer high dividends
relative to individual investors due to mainly the tax effects.

23. Chapter – IV
The Study

24. 4.1 COMPANY – 1
Name: Tata Consultancy Services Limited (TCS Limited)
Type Public company
Traded as BSE: 532540
NSE: TCS,BSE SENSEX Constituent, CNX Nifty Constituent
Industry IT services, IT consulting
Founded 1968
Headquarters Mumbai, Maharashtra, India
Key people N. Chandrasekaran (CEO & MD)
Services IT, business consulting and outsourcing services
Net Profit Increase 19,256.96 cr.(2014-2015)
Employees 319,000+ (April 2015)
Website www.tcs.com

25. TCS
Year
ended as at
31st March
Total Paid
up Capital
(In Cr)
Net Profit after
Depreciation
and Tax
(In Cr)
Dividend
Paid/
Proposed
(In Cr)
Retain earning
carried forward
to Balance
Sheet
(In Cr)
Total Reserves
& Surplus
(In Cr)
2015 195.87 19,256.96 15,473.87 3,783.09 45,220.57
2014 195.87 18,474.92 6,267.33 12,178.83 43,856.01
2013 295.72 12,786.34 4,305.88 8,461.46 32,266.53
2012 295.72 10,975.98 4,893.04 6060.94 24,560.91
Graphical Analysis:
Year ended as
at 31st March
DPS(D/N) EPS
(In RS)
PAY OUT
RATIO
2015 79 98.31 80.35
2014 32 94.17 33.98
2013 22 65.23 33.72
2012 25 55.97 44.66
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
2015 2014 2013 2012
incrore
Years
Net Profit
Dividend Paid
Reserves & Surplus

26. EPS VS Pay out Ratio:
Interpretation
Total paid up capital remains same from FY-2012 .but in FY- 2014 it decreases it shows it is
depend upon equity finance. Because it decreases the issue of share. Net profit increases from
FY-2012-2015 continuously. It shows the company’s business expand in each year. but in FY-
2014-2015 Net Profit is not increases as much more Than FY-2013-2014.But it is a good sign for
company. In 2015 Retain earning decreases from last years because net profit is not much more
increases from FY 2013-2014.it shows the sales are decreases but reserve surplus of company
increases from last financial year it is good sign for company to current operation for future
growth. A company paying dividends is generally a good sign. Well established companies offer
0
20
40
60
80
100
2015 2014 2013 2012
Years
EPS
PAY OUT RATIO
0
10
20
30
40
50
60
70
80
90
2015 2014 2013 2012
PAY OUT RATIO
PAY OUT RATIO

27. dividends back to its shareholders. If a dividend paying company stops paying dividends then
that is a big red flag. In FY-2015 Dividend paid is increases from last FY. To increase in DPS
means that the company is showing their shareholders by giving more dividend to them in the
year 2015. Next comes the PAYOUT Ratio i.e. an indication that what the company is doing
with their earnings. It implies that how much share of PAT the company is giving as a Dividend
and how much of it the company is reserved as its surplus i.e. for its expansion mode. From the
graph it is evident that the Payout ratio decrease in FY 2013 from FY 2012 after that it is
increasing 2015 it shows to the investor to invest in this stock. The earning per share of
company is increases from last year it is a good symbol. overall it shows the it is a good stock.
Abnormal Return (Volume):
0
1
2
3
4
AD-30
TO
AD-1
AD-10
TO
AD-1
AD AD+1
TO
ED-1
ED ED+1
TO
ED+10
ED+1
TO
ED+30
Series1 0.07 0.15 3.73 0.09 2.61 0.24 0.08
RatioofABvoltoAVvolume
TCS Volume Effect
No AD-30
TO AD-
1
AD-10
TO
AD-1
AD AD+1
TO ED-1
ED ED+1
TO
ED+10
ED+1
TO
ED+30
1 CUM. AB 896657 684470 1,608,700 1,405,734 1,126,300 1,063,160 1007827
2 DAYS 30.00 10.00 1.00 35.00 1.00 10.00 30.00
3 AVE.DAILY
AB (1/2)
29888.56 68447 1,608,700 40163.85 1,126,300 106316 33594.23
4 AVE.VOL. 430487.1
5 AB/AVE
(3/4)
0.07 0.15 3.73 0.09 2.61 0.24 0.08

28. Interpretation
The above chart and table represents that there is abnormality in the volume to
considerable extent. Till announcement date there was no huge volume of trade taking place. But
after announcement date the volume trading goes on decreasing. On announcement date there
was increase in price of the script but after AD price went on decreasing and also the volume was
decreasing. On ED maximum volume of trading took place and sharp rise in price was also seen
on that date. This indicates the impact of distribution of dividend news on stock market.
However after that the volume trading went on decreasing as well price after ED+10 and ED+30.

29. 4.2 -COMPANY – 2
Name: Bajaj Auto Limited
Type Public company
Traded as BSE: 532977
NSE: BAJAJ-AUTO BSE SENSEX Constituent CNX Nifty Constituent
Industry Automobile
Founded 1930
Headquarters Pune, India
Key people Rahul Bajaj (Chairman), Rajiv Bajaj (MD)
Products Motorcycles, three-wheeler vehicles and cars
Net Profit Decrease 2,813.74 cr.(2014-2015)
Employees 9,119 + (April 2015)
Website www.bajajauto.com

30. Bajaj Auto
Year
ended as
at 31st
March
Total Paid
up Capital
(In Cr)
Net Profit after
Depreciation
and Tax
(In Cr)
Dividend
Paid/
Proposed
(In Cr)
Retain earning
carried forward
to Balance
Sheet
(In Cr)
Total Reserves
& Surplus
(In Cr)
2015 289.37 2,813.74 1,446.84 1,366.9 10,402.78
2014 289.37 3,243.32 1,446.84 1,796.84 9,318.65
2013 289.37 3,043.57 1,302.15 1,741.42 7,612.58
2012 289.37 3,004.05 1,302.15 1,701.9 5,751.70
Graphical Analysis:
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
2015 2014 2013 2012
incrore
Year
Net Profit
Dividend Paid
Reserves & Surplus
Year
ended as
at 31st
March
DPS(D/N) EPS
(In RS)
PAY
OUT
RATIO
2015 50 97.24 51.41
2014 50 112.08 44.61
2013 45 105.18 42.78
2012 45 103.81 43.35

31. EPS VS Pay out Ratio
Interpretation:
Total paid up capital remains same from FY-2012 . Net profit decreases from FY2014 . It shows
the company’s business is not expand and goods are not sold in well on FY-2014-2015 .also
Retain earning decreases from last Financial year. because net profit has decreased. it shows the
sales are decreases but reserve surplus of company increases from last financial year it is not
good sign for company because net profit and retain earning are decreases from last year it
means company has not invest in current operation and in new ventures . A company paying
dividends is generally a good sign. Well established companies offer dividends back to its
shareholders. If a dividend paying company stops paying dividends then that is a big red flag. In
FY-2015 Dividend paid is remain same from last Financial year. it shows red sign to the investor
to invest in this stock. The earning per share of company is decrease from last year it is not
0
20
40
60
80
100
120
2015 2014 2013 2012
Years
EPS
PAY OUT RATIO
0
10
20
30
40
50
60
2015 2014 2013 2012
PAY OUT RATIO
PAY OUT RATIO

32. good symbol. From the graph it is evident that the Payout ratio is increasing from FY year 2014
to 2015 but it is increasing from year 2013 to 2015considerably overall it shows the it is not a
good stock. because company not investment as much require.so Reserve surplus is only
increasing.
Abnormal Return (Volume):
No
AD-30
TO AD-
1
AD-10
TO AD-
1 AD
AD+1
TO ED-1 ED
ED+1
TO
ED+10
ED+1 TO
4-8-2015
1 CUM. AB 396700.4
312746
2610990 400616.9 239855 430688.8 373880.7
2 DAYS 30.00 10.00 1.00 34.00 1.00 10.00 18.00
3
AVE.DAILY
AB (1/2) 13223.34 31274.6 2610990 11782.85 239855 43068.88 20771.15
4 AVE.VOL. 424423.7
5 AB/AVE (3/4) 0.03 0.07 6.15 0.03 0.56 0.1 0.04
Interpretation:
As we see that there is a big amount of positive abnormality in volume on announcement
date. This could be due to great amount of liquidity in script and price could be such that small
investors tempted to invest in it. But there is fall in AB volume after announcement date. After
announcement date the volume has decreased. Moreover the price chart also indicates the
positive return . But in ED volume is increases. This shows that the decrease in volume is due to
the few buyers who are ready to buy this share at higher price
0
2
4
6
8
AD-30
TO AD-
1
AD-10
TO AD-
1
AD AD+1
TO ED-
1
ED ED+1
TO
ED+10
ED+1
TO 4-
8-2015
Series1 0.03 0.07 6.15 0.03 0.56 0.1 0.04
RatioofABVol.toAvgVol.
Bajaj Auto Volume Effect

33. 4.3 COMPANY – 3
Name: Zee Entertainment Enterprises Ltd.
Type Public company
Industry Mass media
Founded October 1992
Headquarters Mumbai, Maharashtra, India
Key people Subhash Chandra (Chairman), Punit Goenka (MD & CEO)
Products Broadcasting, publishing, cable, movie production
Net Profit Increase 831.80 cr.(2014-15)
Employees 1,826+ (April 2015)
Website www.zeetelevision.com

34. Zee Entertainment
Year
ended as
at31st
March
Total Paid
up Capital
(In Cr)
Net Profit after
Depreciation
and Tax(In Cr)
Dividend
Paid/
Proposed
(In Cr)
Retain earning
carried forward to
Balance Sheet
(In Cr)
Total
Reserves &
Surplus
(In Cr)
2015 2,115.20 831.80 216.10 494.6 2,472.30
2014 2,113.00 772.30 192.10 571.6 1,855.10
2013 95.40 640.70 191.90 448.8 3,257.40
2012 95.90 489.70 143.80 345.9 2,899.20
Graphical Analysis:
0
500
1000
1500
2000
2500
3000
3500
2015 2014 2013 2012
InCrore
Year
Net Profit
Dividend Paid
Reserves & Surplus
Year
ended as at
31st March
DPS(D/N) EPS
(In RS)
PAY OUT
RATIO
2015 2.25 7.40 30.4
2014 2.0 7.95 25.15
2013 2.0 6.72 29.76
2012 1.5 5.11 29.35

35. EPS VS Pay out Ratio
Interpretation:
Total paid up capital increase from last years . it shows it is not depend upon equity finance.
Because it increases the issue of share. Net profit increases from FY-2012 to FY-2015
continuously. It shows the company’s business expand in each year. it is a good sign for
company. In 2015 Retain earning decreases from last Financial year because company give
more dividend than last Financial year 2014. Reserve surplus of company increases from last
year it is good sign for company to current operation for future growth. A company paying
dividends is generally a good sign. Well established companies offer dividends back to its
shareholders. In FY-2015 Dividend paid is increases from last year. it shows to the investor to
invest in this stock. The earning per share of company is little decreases from last year it is not a
good symbol. overall it shows the it is a good stock. From the graph it is evident that the Payout
ratio is increasing from FY- 2014 to FY-2015 which means that the dividend paying security is
increasing. In 2014 the Payout ratio was decreasing. overall it shows that it is a good stock.
0
10
20
30
40
2015 2014 2013 2012
Years
EPS
PAY OUT RATIO
0
10
20
30
40
2015 2014 2013 2012
PAY OUT RATIO
PAY OUT RATIO

36. Abnormal Return (Volume):
No
AD-30
TO AD-1
AD-10
TO AD-
1 AD
AD+1
TO ED-1 ED
ED+1
TO
ED+10
ED+1 TO
4-8-2015
1 CUM. AB 3065420 5300220 11,374,300 2308497 1,249,000 2585690 2310339
2 DAYS 30.00 10.00 1.00 53.00 1.00 10.00 18.00
3
AVE.DAILY
AB (1/2) 102180.66 5,300,22 11,374,300 67897 1,249,000 2585690 128352.16
4 AVE.VOL. 2584570
5 AB/AVE (3/4) 0.04 0.20 4.4 0.03 0.5 1 0.05
Interpretation
We can see that there is a big amount of abnormality in the volume on the Announcement
Date. This could be due to huge selling pressure on the Announcement Date. The Absolute
volume rises gradually before the Announcement Date and reaches on a high peak on the
Announcement Date. After the Announcement of Dividend, the Absolute volume falls down
slowly. This indicates that on the Announcement Date, there must have been some adverse
impact on the investors so that the volume had been shot up. But in ED it increased also it
increased continuously but after some day the volume is fall down. In all, we can see that there
exists abnormality in the volume due to high return generated by the script.
0
1
2
3
4
5
AD-30
TO
AD-1
AD-10
TO
AD-1
AD AD+1
TO ED-
1
ED ED+1
TO
ED+10
ED+1
TO 4-
8-
2015
Series1 0.04 0.2 4.4 0.03 0.5 1 0.05
RatioofABVol.toAvgVol.
Zee Entertainment
Volume Effect

37. 4.4 COMPANY – 4
Name: Sesa Sterlite a Vedanta company
Type Public company
Traded as BSE: 500295
NSE: SESAGOA ,NYSE: SSLTs
Industry Mining
Founded 1954
Headquarters Goa, Karnataka, Odisha - India
Key people Anil Agarwal (Chairman Emiritus) Navin Agarwal(Chairman)
Tom Albanese (Chief Executive Officer) D.D. Jalan(CFO)
Products Zinc Lead Oil and Gas Iron ore Aluminum Copper Gold and Silver
Net Profit Increase 1,927.20 cr. (2014-15)
Employees Approx. 5,100 (April 2015)
Website www.sesasterlite.com

38. Sesa Sterilite
Year ended
as at 31st
March
Total Paid
up Capital
(In Cr)
Net Profit after
Depreciation
and Tax
(In Cr)
Dividend
Paid/
Proposed
(In Cr)
Retain earning
carried forward
to Balance Sheet
(In Cr)
Total Reserves
& Surplus
(In Cr)
2015 296.50 1,927.20 1,215.60 711.6 33,761.37
2014 296.50 1,076.09 963.58 112.51 33,382.32
2013 86.91 120.77 8.69 112.08 12,936.88
2012 86.91 1,679.94 347.64 1332.3 12,826.28
Graphical Analysis:
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
35,000.00
40,000.00
2015 2014 2013 2012
Incrore
Year
Net Profit
Dividend Paid
Reserves & Surplus
Year
ended as
at 31st
March
DPS(D/N) EPS
(In RS)
PAY
OUT
RATIO
2015 4.1 6.50 63.07
2014 3.25 3.63 89.53
2013 0.10 1.39 7.19
2012 4 19.33 20.69

39. EPS VS Pay out Ratio
Interpretation:
Total paid up capital remains same from last Financial year .but in 2014 it has increased from
previous Financial year so it shows it doesn’t depend upon equity finance. Because it increases
the issue of share. Net profit increases from last year . It shows the company’s business expand
in this year. it is a good sign for company. In 2015 Retain earning increases from last year
because net profit is increases from FY 2013-2014.it shows the sales are increase also reserve
surplus of company is increases from last Financial year it is good sign for company to current
operation for future growth. A company is paying dividends is generally a good sign. Well
established companies offer dividends back to its shareholders. In FY-2015 Dividend paid is
increase from last year. it shows good sign for investor to invest in this stock. The earning per
share of company is decreases from last year it is a bad symbol. PAYOUT Ratio i.e. an
0
20
40
60
80
100
2015 2014 2013 2012
Years
EPS
PAY OUT RATIO
0
20
40
60
80
100
2015 2014 2013 2012
PAY OUT RATIO
PAY OUT RATIO

40. indication that what the company is doing with their earnings. From the graph it is evident that
the Payout ratio has decreased from financial year 2014 to 2015 but it is increasing from year
2013 to 2014 considerably. overall it shows that it is not a good stock.
Abnormal Return (Volume):
No
AD-30
TO AD-
1
AD-10
TO AD-
1 AD
AD+1 TO
ED-1 ED
ED+1
TO
ED+10
ED+1 TO
4-8-2015
1 CUM. AB 451177 4691064 6810716 4960929 5858932 7937071 6567488
2 DAYS 30.00 10.00 1.00 46.00 1.00 10.00 21.00
3
AVE.DAILY
AB (1/2) 15039.23 469106.4 6810716 107846.28 5858932 793707.1 312737.52
4 AVE.VOL. 2052584
5 AB/AVE (3/4) 0.007 0.22 3.32 0.053 2.35 0.4 0.15
Interpretation
We can see from the above chart that on announcement date and effective date there
was a positive cumulative abnormal volume generated. on the effective date price had rise to
maximum level. At that time even the maximum abnormal volume was also generated. From this
we can interpret that investors were waiting for the effective distribution date. After the
distribution of dividend investors started selling of their shares and the abnormality began to
reduce gradually after the effective dividend distribution date.
0
1
2
3
4
AD-30
TO AD-
1
AD-10
TO AD-
1
AD AD+1
TO ED-
1
ED ED+1
TO
ED+10
ED+1
TO 4-
8-2015
Series1 0.007 0.22 3.32 0.053 2.35 0.4 0.15
RatioofABVol.toAvgVol
Sesa Sterlite volume effect

41. 4.5 COMPANY – 5
Name: State Bank of India
Type Public company
Traded as BSE: 500112
NSE: SBIN, LSE: SBID,BSE SENSEX Constituent, CNX Nifty Constituent
Industry Banking, Financial Services
Founded 27 January 1921, Imperial Bank of India
1 July 1955, State Bank of India
2 June 1956, nationalization
Headquarters Mumbai, Maharashtra, India
Key people Arundhati Bhattacharya (Chairperson)
Products consumer banking, corporate banking, finance and insurance, investment banking,
mortgage loans, private banking, private equity, savings, Securities, asset
management, wealth management, Credit cards,
Net Profit Increase 13,101.57 cr (2014-15)
Employees 222,033 + (April 2015)
Website www.sbi.co.in

42. State Bank of India
Year ended
as at 31st
March
Total Paid
up Capital
(In Cr)
Net Profit
after
Depreciation
and Tax
(In Cr)
Dividend
Paid/
Proposed
(In Cr)
Retain earning
carried forward
to Balance
Sheet
(In Cr)
Total
Reserves &
Surplus
(In Cr)
2015 746.57 13,101.57 2,557.28 10544.29 127,691.65
2014 746.57 10,891.17 2,239.71 8651.46 117,535.68
2013 684.03 14,104.98 2,838.74 11266.24 98,199.65
2012 671.04 11,707.29 2,348.66 9358.63 83,280.16
Graphical Analysis:
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
2015 2014 2013 2012
InCrore
Years
Net Profit
Dividend Paid
Reserves & Surplus
Year
ended as
at 31st
March
DPS(D/N) EPS
(In RS)
PAY
OUT
RATIO
2015 3.5 17.55 19.94
2014 30 145.88 20.56
2013 41.5 206.20 20.12
2012 35 174.46 20.06

43. EPS VS Pay out Ratio
Interpretation:
Total paid up capital remains same from last financial year .but in FY2014 it increases from
previous financial year it shows it doesn’t depend upon equity finance. Because it increases the
issue of share. Net profit increases from last year continuously. It shows the company’s business
expand in each year. it is a good sign for company. In 2015 Retain earning increases from last
year because net profit is increases from FY 2013-2014.it shows the sales are increased and
reserve surplus of company also increases from last year it is good sign for company to current
operation for future growth. A company paying dividends is generally a good sign. Well
established companies offer dividends back to its shareholders. In FY-2015 Dividend paid is
increases from last year. it shows to the investor to invest in this stock. The earning per share of
company has decreases from last year it is not a good symbol. . From the graph it is evident that
the Payout ratio has decreased from year 2014 to 2015 but it had increased from year 2013 to
0
50
100
150
200
250
2015 2014 2013 2012
Years
EPS
PAY OUT RATIO
19.6
19.8
20
20.2
20.4
20.6
20.8
2015 2014 2013 2012
PAY OUT RATIO
PAY OUT RATIO

44. 2014 considerably. Lower is the Payout Ratio of a company higher securing the payment of the
dividend. Overall it shows that it is a good stock. but near future it will give more benefit to
investors.
Abnormal Return (Volume):
No
AD-30
TO AD-
1
AD-10
TO AD-
1 AD
AD+1 TO
ED-1 ED
ED+1
TO
ED+10
ED+1 TO
ED+30
1 CUM. AB 1384220 1849270 9,541,200 1889900 1,601,900 1821950 13573173
2 DAYS 30.00 10.00 1.00 3.00 1.00 10.00 30.00
3
AVE.DAILY
AB (1/2) 46140.66 184927 9,541,200 629966.66 1,601,900 1821950 452439.1
4 AVE.VOL. 2039789
5 AB/AVE (3/4) 0.02 0.1 4.7 0.31 0.8 0.9 0.22
Interpretation
As we see that from chart that on announcement date and effective date there was a
positive cumulative abnormal volume generated. Before AD volume was low. But on AD
volume level suddenly increased after AD it was decreasing down .and on ED it was increased
also in stable state after ED. Then it falls down. It means that investors started selling their shares
after earning dividend income. This increased the volume of transactions and thereby generated
positive cumulative abnormal return which is in the interest of shareholders.
0
1
2
3
4
5
AD-30
TO
AD-1
AD-10
TO
AD-1
AD AD+1
TO ED-
1
ED ED+1
TO
ED+10
ED+1
TO
ED+30
Series1 0.02 0.1 4.7 0.31 0.8 0.9 0.22
RatioofABVol.toAvgVol.
State Bank of india volume effect

45. Chapter – V
Finding

46. There is no fixed pattern in the distribution of Dividend of the Industries. But pattern could be
worked out for different Companies.
For Shareholders: From the Shareholders’ point of view the company which is giving more
Dividend is good for the shareholders’. So companies should try to increase their DPS (dividend
per share) to woo the shareholders’ to invest more and more in them.
For Organizations: The companies which have higher EPS (earning per share) is good because
higher the EPS higher is the PAT. So companies should try to increase their PAT so that their
EPS will increase.
Regarding Payout Ratio: From the analysis of all the five companies we found that their Payout
Ratios are in the range of 25 -35 which is considered a very good ratio. The companies are
distributed their almost 1/3rd as their Dividend and rest are retained as surplus.

47. Chapter – VI
Conclusions

48. CONCLUSIONS:
 This project examines the relation between dividend decision and its impact on the
market price of the stock.
 The information about the corporate dividend policies brings abnormality in the market
and market does perform efficiently.
 The movements in stock prices and trading volume are influenced by the flow of new
information into the market.
 The dividend effect are reflected into the market price of the company within the time
period of few days before the announce date to few days after the ex-dividend date.
 Insider information plays vital role in the fluctuations of stock price and trading volume
of and company which has declared dividend.
 We can conclude from this project that there is linear relationship between dividend
decision and market price of the company for a limited duration. Thereafter the markets
start behaving efficiently and absorb all the available information in the market.

49. Chapter – VII
Future Projection

51. Tata Consultancy Services Limited (TCS Limited):
In India, the IT Software segment has seen significant growth and has put India on the global
map. It contributes for almost 75% of the total revenues of the IT sector. Though Hardware
enjoys second place in terms of market share in India, it is quite low as compared to global
benchmark. The BPO segment has grown well and is expected to make a footprint in the IT
Sector. It is the good news for the IT sector.
Tata Consultancy Services is an IT services, consulting and business solutions organization that
delivers real results to global business, ensuring a level of certainty no other firm can match.
TCS offers a consulting-led, integrated portfolio of IT, infrastructure, engineering and assurance
services. This is delivered through its unique Global Network Delivery Model, recognized as the
benchmark of excellence in software development.
Tabular Form:
Years Total Paid
up Capital
(In Cr)
% change
of Paid up
Capital
Total
Income
(In Cr)
% change
of
income
Total
Expenditure
(In Cr)
% change
Of
expenditure
2011 295.72 29,769.27 20,511.01
2012 295.72 0 41,543.46 39.55 27,472.56 33.94
2013 295.72 0 50,656.53 21.93 34,119.87 24.19
2014 195.87 -33.76 67,787.71 33.81 43,139.28 26.43
2015 195.87 0 78,573.02 15.91 52,549.71 21.81

52. Before 4 year at the time of Global crises TCS had good market value because it could have
made good opportunity for job seekers in world wide. At that it had taken the more contracts
from European country so its revenue price had increased. In 2013, TCS is ranked 57th overall in
the Forbes World's Most Innovative Companies ranking, making it both the highest-ranked IT
services company and the first Indian company also TCS recognized as “Big Four” IT Services
brand . TCS became No. 2 IT services company in the world by M-cap in 2013. In 2014 TCS
joined top 10 global IT services companies club and it recognized as world’s fastest growing
global IT Services brand ,became the first Indian company to cross the Rs 5 lakh crore mark in
market capitalization also paid Rs 12,750 crore in dividends to its shareholders -- one of the
highest-ever dividend payout by an Indian company. .But For the year ended March 31, 2015,
TCS lost 14.9% of its total workforce of over 3 lakh employees because of suffering in high
attrition.
In Last 12 months Infosys give the more return than TCS. So in near future TCS will try to more
return. Now its market price is better than other software company. In FY-2015 Reduced the
corporate tax so it is easy for it company to growth in the market and extended business. Now
BSE try to cross over 30,000 all of the company support to cross this point TCS is the one of
them. Now TCS market Price is 2505 it will increase in future because It is not going to go down
as much but at the same time upside is limited. Now TCS wanted to extend their business all
over the world so Announces Global Strategic Partnership with FICO a leading analytics
software company, to enable clients to purchase and implement FICO solutions through TCS.
Also Bank of Bhutan selects TCS for Core Banking to power next generation banking services
this two are good opportunity for TCS to increase their business.
Year Net profit
( In Cr)
%change of
net profit
Reserve
surplus
( In Cr)
% change of
Reserve surplus
2011 7,569.99 19,283.77
2012 10,975.98 44.99 24,560.91 27.36
2013 12,786.34 16.49 32,266.53 31.37
2014 18,474.92 44.48 43,856.01 35.91
2015 19,256.96 4.23 45,220.57 3.11

53. In 2015 TCS Won Business Transformation Award from Pegasystems , TCS China Awarded at
Global CEO Innovation in china and Won Gold, Silver and Bronze Stevieat 2015 American
Business Awards .Definitely it will increases the brand value of TCS and other countries also
give chance to increase its business. so company's net profit will grow, aided by other income.
In near future TCS market will grow up.
Expected TCS Growth:
2012 2013 2014 2015 2016 2017
%change of net profit 44.99 16.49 44.48 4.23 6.74 15.67
% change of Reserve
surplus
27.36 31.37 35.91 3.11 5.43 9.64
0
5
10
15
20
25
30
35
40
45
50
Changein%
TCS Future Expection

55. Bajaj Auto Limited:
India, no doubt is a big market for two-wheelers with numerous manufacturers present in the
country and the production figures reveal that too. Close to 18,499,970 two-wheelers were
produced in India in FY15, which meant that a two-wheeler came out of an assembly line every
two seconds. Eight out of ten bikes sold is either from Hero, Honda or Bajaj. One out of
every 2 three-wheeler passenger carrier is a Bajaj. Bajaj is for the three-wheeler passenger
carrier segment. Out of 432,234 three-wheeler passenger carrier, 234,345 units sold are from
BajajAuto.
Tabular form:
Years Total Paid
up Capital
(In Cr)
% change
of Paid up
Capital
Income
(In Cr)
% change
of
income
Expenditure
(In Cr)
% change
Of
expenditure
2011 289.37 17,782.08 13,309.80
2012 289.37 0 20,097.17 0.13 15,903.14 19.48
2013 289.37 0 20,768.74 0.03 16,338.00 2.73
2014 289.37 0 20,874.82 0.005 16,062.67 -1.66
2015 289.37 0 21,911.70 0.05 17,553.02 9.27
Years Net profit
(In Cr)
%change of
net profit
Reserve
surplus
(In Cr)
% change of
Reserve surplus
2011 3,339.73 4,620.85
2012 3,004.05 -10.05 5,751.70 24.47
2013 3,043.57 1.31 7,612.58 32.35
2014 3,243.32 6.5 9,318.65 22.41
2015 2,813.74 -13.24 10,402.78 11.63

56. Bajaj Auto’s market share in the two-wheeler segment is down in FY12, due to volume decline
for the Discover and market share loss in the premium segment to players such as Royal Enfield.
Launches in the economy segment and upcoming launches in the sports premium segment
including a new Pulsar, will help fortify its position in these segments. so the company large
investment to the project.
In2 012-13(FY2013) also continued to be poor. In the backdrop of GDP growth of country. so
the company face more problem.Net Profit was increased but in not expected. Tax also increased
.it is totally effect to this company.
In 2013-2014(FY-2014) saw Bajaj Auto Ltd. achieve its highest ever operating earnings before
interest, tax, depreciation and amortization (EBITDA), profit before tax(PBT) and profit after
tax (PAT).also in 2013 Bajaj Auto was displaced from the second spot by the rapidly growing
Japan's Honda Motorcycle & Scooter India . because introduce new motor cycle and develop the
R&D company.In 2013 Bajaj Auto plans to export Discover 100T motorcycle to outside of
INDIA. and in 2014on 1st month company bags order in Sri Lanka this gave the more benefit
to company.
In 2014-2015 (FY2015) company sales performance impacted by slowdown in Egypt and
Nigeria, it is key export markets. So motorcycle sales, including exports, dropped. also face the
challenges on the international front where volumes have come down due to political and
economic uncertainty. also company not introduce the new bike.Also company invest large
money to expand their business.
Now the Bajaj company market is decline. So company has decided to introduce new bike like
Bajaj Platina 100 ES, Bajaj CT 100 (Re introduced), Pulsar RS 200, Pulsar AS200 & AS150,
Pulsar NS150 to expand their business. Bajaj CT 100 has own reputation is a economic bike.
Rural people will Interest to purchase these Bike this will help to company increase in Revenue.
‘Make in India’ programmed, aimed at attracting foreign investments and turning the country
into a manufacturing hub. Auto industry will be the main driver for manufacturing growth in the
India. Therefore, the automotive sector has been chosen as a top priority area under the “ Make
in India” programme. It targets to make India the world’s third largest market for automobiles by
2016 .so this effect will definitely affect to the Company to expand the business in domestic .

57. Recent Central Bank of India signed Memorandum of Understanding (MOU) with Bajaj Auto
Limited to provide finance in less interest for customers who intend to buy the Bajaj's Auto
Rickshaws .Easily one poor people purchase the auto by take loan from this bank. Andhra Bank
and Bajaj Auto have signed a memorandum of understanding (MoU) for a strategic tie-up for
financing of Bajaj 2-wheelers being purchased by rural farmers under a scheme called `Bajaj
Kisan Chakra'. Maharashtra Govt. several announcements by auto majors, all aimed at expanding
their existing plants in the state., Bajaj Auto also invest a Rs 4,000 crore to expand their
business.it will definitely grow in near future.
Expected Bajaj Auto.Growth:
2012 2013 2014 2015 2016 2017
%change of net
profit
-10.05 1.31 6.5 -13.24 7.67 9.75
% change of
Reserve surplus
24.47 32.35 22.41 11.63 13.45 10.23
-20
-10
0
10
20
30
40
Changein%
Bajaj Auto Future Expection

59. State Bank of India(SBI)
The banking sector, being the barometer of the economy, is reflective of the macro-economic
variables. While the Indian economy is yet to catch strength, the Indian banking system
continues to deal with improvement in asset quality, execution of prudent risk management
practices and capital adequacy. With the potential to become the fifth largest banking industry in
the world by 2020 and third largest by 2025 according to KPMG-CII report, India’s banking and
financial sector is expanding rapidly. The Indian Banking industry is currently worth Rs. 81
trillion (US $ 1.31 trillion) and banks are now utilizing the latest technologies like internet and
mobile devices to carry out transactions and communicate with the masses.
State Bank of India (SBI) is an India-based commercial bank. The Company’s banking activities
include Personal Banking, Agricultural/Rural, NRI Services, International Banking, Corporate
Banking and Services. The Personal Banking offers deposit schemes, personal finance, gold
banking and services. SBI was ranked 73rd largest bank in the world, according to 2014 SNL
financial data. SBI had 190 overseas offices spread over 36 countries.
Tabular Form:
Year Total Paid
up Capital
(In Cr)
% change
of Paid up
Capital
Total
Income
(In Cr)
% change
of
income
Total
Expenditure
(In Cr)
% change
Of
expenditure
2011 635.00 96,324.7 88,954.45
2012 671.04 5.67 120,872.90 25.48 109,165.61 22.72
2013 684.03 1.93 135,691.94 12.26 121,586.96 11.37
2014 746.57 9.14 154,903.72 14.15 144,012.55 18.44
2015 746.57 0 174,972.96 12.95 161,871.39 12.4

60. In year 2012 Bank its revenue was increased out of which domestic operations contributed to
95.35% of revenue. Similarly, domestic operations contributed to 88.37% of total profits for the
same financial year. The company profit was increased to 58.84%. In 2012-2013its net profit
increase but its decrease from last year because in 2013 company expand their business in
foreign country. as of 28 March 2013, the bank had 190 overseas offices spread over 36
countries. So company expenditure more money on it. In 2013-2014 company net profit
decreases 23 % from previous year. because India's economic slowdown in this fiscal years has
dragged banks' loan growth levels to multi-year lows, while bad debts surged as companies
struggled to repay. In 2014-15 (FY-2015) company income increases but company not
expenditure as not as previous year because company already spread their business in country
and on foreign country.
The SBI index has been developed on the basis of the bank’s internal loan portfolio, which
mirrors the credit demand in the country, and other data sets available in public domain.This
brand value will help to increases the no of the customer on this company.The customer are
increases continuously . Under the Pradhan Mantri Jan Dhan Yojana of financial inclusion
launched by Government, SBI held 11,300 camps and opened over 30 lakhs accounts by
September, which included 21.16 lakh accounts in rural areas and 8.8 lakh accounts in urban
areas. Now SBI agreed with 26 countries in worldwide to provide finance for development of
IT. On the MAKE IN INDIA purpose the GOVT. call the large foreign company to INDIA. This
the best opportunity for SBI to the grow up . SBI has signed a deal with Amazon, according to
which, they are going to develop high end payment and commerce solutions for their common
customers and small scale businesses. It seems that both Amazon and SBI have several small
Year Net profit
(In Cr)
%change of
net profit
Reserve surplus
(In Cr)
% change of
Reserve surplus
2011 7,370.35 64,351.04
2012 11,707.29 58.84 83,280.16 29.41
2013 14,104.98 20.48 98,199.65 17.91
2014 10,891.17 -22.78 117,535.68 19.69
2015 13,101.57 20.29 127,691.65 8.64

61. scale business ventures as common customer . SBI is all set to sign such MoUs with leading B2B
ecommerce platform Snapdeal. from this ecommerce company will get more profit from it
because Ecommerce has grown up day to day. SBI has also confirmed their partnership with
Paypal. PayPal is the world’s leading open digital payments company. The partnership will
enable SBI Debit cardholders to use PayPal when buying products from overseas websites and
allow SBI’s Micro Small and Medium Enterprise customers to gain access to PayPal’s secure
payment solutions. Indian Army has signed a Memorandum of Understanding (MoU) with the
State Bank of India on the Defence Salary Package it is the another opportunity for
company to grow up. So In the near future SBI will grow up.
Expected SBI Growth:
2012 2013 2014 2015 2016 2017
%change of net profit 58.84 20.48 -22.78 20.29 15.38 21.87
% change of Reserve
surplus
29.41 17.91 19.69 8.64 10.64 12.12
-30
-20
-10
0
10
20
30
40
50
60
70
changein%
SBI Future Expection

62. Chapter –VIII
Suggestions and Recommendations

63.  The dividend news in the market creates abnormality in the return and volume of the
script, so that investor should not treat that markets are always efficient.
 Investors should behave rationally while taking their decision regarding investment in
any script. They should wait for the abnormality in the script to be removed before
investing in it.
 For long term investor, dividend decision of a company should not be a major influencing
factor in their investment decision.
 Investors should consider the fundamentals of the company before investing in it and
should consider the actual performance of the company over the period of time.
 Dividend as a corporate event affects the share prices of the firm for a specific time
period only. As dividend event gets over the abnormality in the script is removed and the
stock prices start reflecting its actual value. So investors should not get lured by the
dividends.
 Directors should adopt a dividend policy which gives consideration to the interests of
each of the group comprising a substantial proportion of shareholders.
 A definite dividend policy, followed for a long period in the past trends to create
clientele effect. That is it attracts those investors that consider the dividend policy in
accord with their investment requirements. If the company suddenly changes its dividend
policy, it may work to the detriment to those shareholders as they may have to switch to
other companies to fulfill their needs. Thus an established dividend policy should be
changed only after having an analyzed its probable effect on existing shareholders. It
should be changed slowly and not abruptly.
 A huge positive abnormal return before the announce date of dividend indicates the sins
of leakage of any insider information. So the investor must check room for such insider
information before investing in that company. This will help them to protect themselves
from future losses.

64. BIBLIOGRAPHY

65. REFERENCES:
 Anand, M. (2004). “Factors influencing dividend policy decisions of corporate India”.
ICFAI Journal of Applied Finance, 10(2), 5 -16
 Dr. Y.S.R (2003). “Dividend Policy of Indian corporate firm: An analysis of trends and
determinants”.
 Farouqui, S.U., & Saiyed, A.A. (2008). “Dividend – A lure for investors”. Banking
Finance, pp-5.
 Black, F. (1976), “Dividend Puzzle” Journal for portfolio Management, Vol. 2, No 2,
winter, pp. 5-8
 Mahahjan, S & Singh, B, (2008). “Trading Volume and Return Volatility Dynamics in
Indian Stock Market.” The ICFAI journal of Applied Finance., 14(2), pp-20.
 Rijwani, P. (2007) “Stock split – The mystery Unleashed”, Research Development
Association Journal, December 2007.
 Singla, H.K. (2007). “An Empirical Test – Stock Split Announcement in Indian Market.”
Portfolio Organizer, pp-9
 Miller, M and K. Rock (1985), “Dividend Policy under Asymmetric Information”,
Journal of Finance, Vol. 40, No.4, pp. 1031-1051.
 Data Collected from
www.bseindia.com
www.moneycontrol.com
 https://en.wikipedia.org/wiki/TCS_Limited
 http://en.wikipedia.org/wiki/ Bajaj Auto Limited
 http://en.wikipedia.org/wiki/SBI Limited_
 https://en.wikipedia.org/wiki/ Zee Entertainment Enterprises Ltd
 http://en.wikipedia.org/wiki/ Sesa Sterlite Limited.